383 firms still in the ARP as insurers strongly back indemnity reform plan

By Legal Futures

29 October 2010

Insurance market: report should spur change

There are 383 law firms currently in the assigned risks pool (ARP), the Solicitors Regulation Authority (SRA) has revealed.

The news comes as the Association of British Insurers (ABI) gave a strong welcome to an independent report on the need for reform of professional indemnity insurance (PII), saying the market can no longer tolerate periodic crises caused by a combination of “poorly enforced regulation and restrictive policy requirements”.

As the month firms without insurance on 1 October have to arrange backdated cover comes to an end, the number in the ARP has not fallen significantly since the 409 first notified at the start of the month (see story). There were 214 firms in the ARP up until this renewal, meaning the cost of the ARP to the profession is likely to rise yet further.

Meanwhile, the ABI pointed out how the SRA-commissioned report (see story), by Charles River Associates, highlighted that the move to an open market for solicitors’ professional indemnity insurance 10 years ago has since saved solicitors £2.1 billion in premiums.

This is based on the average cost of fees paid to the old Solicitors Indemnity Fund, against the average insurance premium paid in the open market.

The ABI backs the recommendations in the report that, for a sustainable solicitors’ professional indemnity market to continue, the following changes must be made:

The minimum terms of the policy, as required by the SRA, must allow insurers to set premiums that more accurately reflect the risks of work carried out;

The funding of the ARP needs to change to provide more incentives for the profession to deal with the small number of poorly run firms by transferring the costs of the ARP more explicitly to the profession;

Insurers should be able to cancel a policy if a solicitor fails to pay its premiums; and

The single common renewal date should be scrapped.

Kate Carr, the ABI’s assistant director of markets and regulation, said: “This report clearly highlights the value of a competitive insurance market for solicitors’ indemnity insurance. But it also highlights what we have long argued for – fundamental change to how this market operates to ensure a sustainable future for solicitors’ indemnity insurance.

“This market cannot tolerate periodic crisis, caused by a combination of poorly enforced regulation and restrictive policy requirements, such as insurers’ requirement to stay on cover when premiums are not maintained, and exacerbated by significant increases in claims in recent years. Over 350 solicitor firms are now in the ARP and this is simply unsustainable.

“We hope this report will spur the legal profession into working with us to ensure that these overdue and urgent changes can be introduced to bring stability and sustainability back to this market.”

Legal Futures Blog

Last month, MPs on the justice select committee asked minister Lord Keen what would happen when the government went ahead with its plan to raise the small claims limit for personal injury claims (from £1,000 to £5,000 for road traffic related claims and to £2,000 for everything else). As it is a jurisdiction in which lawyers do not generally operate – because legal costs are not recoverable – who might help claimants navigate what can still be a complex process? His answer, surprisingly, was claims management companies.